Amazon may benefit as digital goods sales jump

Digital goods are the fastest-growing category online this holiday, led by e-books, suggesting Amazon.com Inc's strategy of blanketing the world with cheap e-readers and tablet computers may be producing some early gains.

Sales of digital goods, which also include music and videos, are up about 30 percent this holiday season, compared to the same period last year, according to comScore data.

That is ahead of sales of consumer electronics and jewelry and watches, which are up about 25 percent versus last year's holiday season, and apparel and accessories, which are growing in line with overall e-commerce at roughly 15 percent, comScore data show.

The only other holiday season that digital goods grew the fastest was in 2006, when sales jumped 83 percent from a smaller base, according to comScore. At that time, Apple Inc's iTunes music store drove a lot of the growth of the category.

"Music is a much more stable market at this point. The real new growth is coming from e-books," said Andrew Lipsman of comScore.

"The increased proliferation of devices, such as tablets and e-readers, has led to more forms of digital content being downloaded," he added. "People are downloading e-books in a way they had not previously."

Amazon launched its $199 Kindle Fire tablet ahead of the holidays and slashed prices on its range of Kindle e-readers.

Earlier this month, Amazon said customers were buying more than one million Kindles a week and analysts at Goldman Sachs estimate the company will sell 14 million units during the fourth quarter.

Amazon priced these products aggressively and many analysts estimate the company is making little or no profit on the devices. Instead, Amazon is hoping to make money from higher sales of digital goods, according to Aaron Kessler, an analyst at Raymond James.

"Tablets and Kindles are selling a lot this season and that should ultimately benefit Amazon's digital sales," he said.

A DIGITAL CHRISTMAS

Still, a lot of these devices were bought as gifts this holiday, so the full impact on digital content sales will probably not come until Christmas Day and the weeks that follow, Kessler added.

Indeed, the 30 percent growth rate of digital goods so far this holiday season will likely increase next week, comScore's Lipsman said.

Christmas Day is the heaviest day of the year for digital content sales and downloads. Last year, about $10 million was spent on this category on Christmas Day. The second busiest days were Dec 26 and Dec 27, according to comScore.

Spending on digital goods during the week between Christmas and New Year's last year was three times more than the average week in 2010, comScore data also show.

In the past, such spikes have been caused by people using new Apple iPods, iPads and iTunes gift cards to buy and download music, videos, apps and e-books, Lipsman said.

"We think it will be even bigger this year as more tablets and e-readers make it onto the market," he said. "I wouldn't be surprised if Amazon is a major beneficiary of this."

Historically, Christmas Day is the largest day for digital sales on Amazon.com, followed by Dec 26. Last year, from Christmas Eve through Dec 30, Amazon's digital content sales were over three times higher than the weekly average for 2010.

"With the introduction of Kindle Fire this season, millions more customers will be shopping for new digital content," said Craig Pape, director of music at Amazon.com.

Amazon is planning to run discounts on digital goods, including e-books, music, video, apps and games, on Christmas Day and the days that follow.

(Reporting by Alistair Barr; Editing by Phil Berlowitz)

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